Free Session 2 PRE-Class Exercise Essay Sample
True or False
1 right - more people are ready to buy cigarettes now.
2 right - part of the cigar consumers will change their preference to cigarettes.
3 right - part of the people can buy more expensive cigarettes now.
4 left - price increase of complementary product will cause decreasing of elasticity of demand. Some people will buy cheaper cigarettes now as far as they have to pay more for the lighter.
5 right - price increase makes people buy cigarettes less.
If there are any suppliers on the market we consider it to be competitive market, so one firm cannot influence on market price.
1 the price of the good may slightly decrease as far as we have more options of suppliers.
2 this may cause increase of demand on our product as far as there are less substitutes on the market now.
3 this situation may have bad effect on the product and market in general, so probably the demand will decrease because of negative news regarding our product.
4 in this case we may assume that overall supply will increase due to the strategy of such CEOs. this may cause problems for our company.
5 the same effect as with previous situation - supply goes up, price can slightly decrease.
1 demand, shifts right, equilibrium price and quantity rise
2 demand, shifts left, equilibrium price and quantity fall
3 Seeking to stock up, buyers buy more now. This triggers the buyers' expectations demand determinant, increases demand, and shifts the demand curve rightward.
4 The demand curve for a good will shift to the left if the price of its complementary good increases.
5 supply, shifts right, equilibrium price and quantity fall. New technology will probably decrease the price of exploration and increase the amount of petrol.
6 supply, shifts right, equilibrium price and quantity fall
Session 2 Post-class Exercise
The equilibrium rent in Singapore is $1500 and the equilibrium quantity of apartments is 600.
When the current rental is $1200 there will be the deficit(400) of apartments on the market. Due to the fact that demand is 800 and supply can offer only 400.
At the price $1800 only 400 apartments will be rented as far as only 400 people are ready to pay this price for rent.
The law of demand in a perfectly competitive market states that as the price of a good or service increases, consumer demand for the good or service will decrease, and vice versa.
Change in demand – movements of the curve to the left or to the right. It occurs when one or more of the determinants of demand changes. Determinants of demand include consumers preferences, income, and the prices of substitute goods. A change in the quantity demanded – simple movement along a demand curve as a result of price change of the good. Graphically, the demand curve remains the same.
Tea leaves market.
1) The price of coffee increases
2) Researchers found certain ingredients in tea which can cure lung cancer
3) A more efficient method of processing tea leaves is introduced
4) Due to a serious economic recession, many consumers have become unemployed.
a) The price elasticity of demand for the plane ticket from Singapore to Bangkok is elastic as far as in case of high price you can always take a bus;
b) The price elasticity of demand for the private healthcare insurance is inelastic because people always wants to care about their health;
c) The price elasticity of demand for the import of crude oil is inelastic because pertoleum is always needed for driving a car;
d) The price elasticity of demand for a beer is elastic because it is always possible to change beet to vine at the restaurant.
e) The price elasticity of demand for travel insurance is inelastic as far as it is obligatory to have one when you are traveling.
f) The price elasticity of demand for motor insurance is more inelastic than elastic because people needs cars to drive to work.
a) The price elasticity of supply is a responsiveness of producers to changes in the price of their goods or services. As a general rule, if prices rise so does the supply.
b) Determinants of of price elasticity of supply:
Availability of materials;
Length and complexity of good;
Time to respond the market;
c) Explain which is more elastic:
1) Car washing service is more elastic because you can always wash the car by yourself or use another place to wash it, but medical service is something you need under any circumstances;
2) Electricity is more inelastic due to the fact that every single detail needs electricity to plug in and battaries cannot help without electricity;
3) Both are elastic as far as they are luxury goods.
Session 3 Pre-class Exercise
True or False
1 f Since there are a large number of sellers all selling an identical product, each firm has noprice-setting power.
2 f A monopoly is a firm who is the sole seller of its product, and where there are no close substitutes.
3 t The four primary barriers to entry are: (1) resource ownership, (2) patents and copyrights, (3) government restrictions, and (2) start-up cost.
4 f The company controls most of the worlds diamond mines and limits the quantity of diamonds supplied to the market.
6 t price-taker. a perfectly competitive market is one in which no single firm has to influence either the equilibrium price of the market or the the total quantity supplied in the market.
7 f. in Singapore has been implemented special system that makes the electricity market competitive and, moreover, effective.
8 f mergers and acquisitions could cause oligopolic structure to become a monopolistic.
9 f collusion takes place within an industry when rival companies cooperate for their mutual benefit. Collusion most often takes place within the market structure of oligopoly, where the decision of a few firms to collude can significantly impact the market as a whole
10 f. only monopolists can. companies within perfect competition cannot influence on market price at all.
Session 3 Post-class Exercise
a) The four key characteristics of monopoly are: a single firm selling all output in a market, a unique product, restrictions on entry into and exit out of the industry, and more often than not specialized information about production techniques unavailable to other potential producers.
b) Monopoly price is always higher and output is smaller than is is social ideal, and the public is a victim.
A)Monopolistic competition contains a considerable amount of competition mixed with a small dose of monopoly power. Monopolistic competition refers to a market situation in which a relatively large number of sellers offer similar but not identical products. 1. Each firm has a small percentage of the total market. 2. Collusion is nearly impossible with so many firms. 3. Firms act independently; the actions of one firm are ignored by the other firms in the industry.B. Product differentiation and other types of non-price competition give the individual firm some degree of monopoly power that the purely competitive firm does not possess. 1. Product differentiation may be physical (qualitative). 2. Services and conditions accompanying the sale of the product are important aspects of product differentiation. 3. Location is another type of differentiation. 4. Brand names and packaging lead to perceived differences. 5. Product differentiation allows producers to have some control over the prices of their products.Similar to pure competition, under monopolistic competition firms can enter and exit these industries relatively easily. Trade secrets or trademarks may provide firms some monopoly power.
C. On such market each firm has a strong brand and usually has some amount of loyal customers who prefer this product due to some non-price differences. In this case companies are using non-price strategies, such as advertisement and branding.
Session 4 Pre-class Exercise
True or False
6 f (Y=C+I+G+NX)
7 f. this is financial transaction.
8 f. GDP includes only those products that are sold in markets.
9 f. however GDP includes the service provided by the used car salesman(part of the cat's price)
1. Lowering company taxes is a way to reduce amount of underground production and make companies reveal their real activities. As the Laffer Curve shows, tax rate is not efficient after some point, which makes companies to work illegally.
2. I think that government might try to implement the way to count the shadow labor force as provided service in GDP. This action might increas the GDP a few % due to the problem of illegal immigrants. The one underground activity that will never go to DGP is mentioned laundry services within a household(family). This activity is the same minor for our economy as making tea for a husband, and counting it into the GDP would not help to show countries situation at all.
Session 3 Pre-class Exercise
a) Real GDP in 2009 is calculated using the 2008 quantities and the 2012 – the base year – prices.
b) The expenditures approach to the GDP recognizes that there are four possible uses for the output of an economy in any given year. The output can be purchased by private households, by businesses, by the government, or by the foreign sector. In this case consumption is the part of the Household Consumption (C ) or Investment Expenditures (I) – depends on buyers(consumers or other firms). Y = C + I + G + NX
Where Y is the GDP, C is Personal Consumption, I is Domestic Investment, G is Government Expenditures and NX is Exports-Imports.
c) The final Income Approach to the GDP is therefore given by:
Y = National Income(Compensation to Employees (Wages) + Rents + Interest + Proprietor’s Income + Corporate Profits) + Indirect Business Taxes + Depreciation + NFFI
Official figures usually have a category called "statistical discrepancy", which is needed to balance out the two approaches and is called "fudge factor”. The reason to count this difference is that Bureau of Economic Analysis need to have equal GDP counted with both methods, and "statistical discrepancy” category is a way to do that, as far as in different years the actual value can be positive or negative.
d) As we know spending is the way to achieve growth in general(the money should work), but the view that consumption is “stimulative” while saving is harmful is almost the exact opposite of the truth if the goal is to generate sustainable economic growth. Savings is what makes long-term growth possible and creates stable base for future. Such things as life insurance or retirement plans are the part of great structure of savings for the future and the way to accumulate money for recent government investments.
Gross Domestic Product (GDP) is the best way to measure a country's economy. It includes everything produced by all the people and companies that are in the country. This definition has four parts: ƒ Market value ƒ Final goods and services ƒ Produced within a country ƒ In a given time period
GDP as examined using the Expenditure Approach is reported as the sum of four components. The formula for determining GDP is: C + I + G + (X - M) = GDP
C = Personal Consumption Expenditures
I = Gross Private Fixed Investment
G = Government Expenditures and Investment
X = Net Exports
M = Net Imports
The expenditure approach entails estimating the total spending on final goods and services during the year. Household(personal) consumption is typically the biggest category of spending’s in a national economy. In the US, for example, it accouts for about 2/3 of spending’s.
Some activities that are not included in the GDP: unpaid work, black-market activities, capital stock that are used in producing the output, sales of used goods, transfer payments made by the government, intermediate goods that are used to produce other final goods, sales of goods that were produced outside our domestic borders.
Key determinants of long-term economic growth:
Classical Economist View
Neoclassical Economist View – Technology(A)
Production functions show how businesses transform factors of production into output of goods and services. ¾ Output is produced by N and K through the application of A.
Y = F( N, K, A )
Determinants of long-term growth:1) Growth of productivity: is the ratio of economic outputs to inputs (capital, labor, energy, materials, and services). When the productivity increases the cost of goods is lowered. Lower prices increase the demand for the product or service. An increase in demand can lead to higher revenue.
2) Demographic changes: demographic factors influence economic growth by changing the employment to population ratio. Factors include the quantity and quality of available natural resources. Age structure of the population also influences employment and long-run growth.
3) Labor force participation: the amount of labor force participation and the size of economic sectors influence economic growth. The labor force participation is the amount of workers available. In countries with high development and industrialization, labor force participation is high because of low birth and death rates.
Discuss how GDP of Singapore will change in the following situations:a) Purchasing a used bicycle will not effect GDP at all as far as GDP includes only new produced goods. This bicycle was already counted in GDP once in has been sold first time.
b) New TV from China. GDP is defined as the value of all the final goods and services produced in a country during a given time period. But in case if this TV was imported officially, it may appear in section Imports so it will appear in GDP(with negative value as far as NX=X-M).
c) New North-South MRT line. In this case this activity will appear in GDP as G(Government Expenditures) as an Infrustruction and Investment spending.
d) Purchasing education service from Kaplan by Indonesian student will effect the GDP as far as this is a final service produced in a country.
e) Visiting a doctor by local Singaporean will definitely effect the GDP as a final service produced in a country.
f) Wellfare assistance, as a social benefit, is considered to be non-exhaustive and this transfer is made without any exchange of goods or services. His action will not appear in GDP.
g) Purchasing monitor insurance will affect GDP in case if this Asia Insurance Company is located in Singapore or has registered filial branch in Singapore.Pre-class Exercise
True or False
2 f Percentage of total workforce who are unemployed but are looking for a paid job
3 t Structural unemployment
4 w Unemployed - who are seeking for a paid job
6 f CPI
7 f It is Trough
8 f This is Monetary Policy
5 b ($100)
8 d But actually all of them are not in the labor force.
Page 144 – cannot see the slides.
Session 3 Post-class Exercise
Question 1a) Inflation - The rate at which the general level of prices for goods and services is rising, and, subsequently, purchasing power is falling. b) High inflation rate distorts consumer behavior, redistributes the income of people, difficulties for business organizations to predict the future and accurately calculate prices and returns from investments, the exports is less attractive compared to the other country.
c) Unemployment tare and inflation have an inverted connection within the business cycle. Unemployment increases during business cycle recessions and decreases during business cycle expansions, but inflation decreases during recessions and increases during expansions.
d) Cyclical unemployment is when workers lose their jobs during downturns in the business cycle. So when GDP growth is small (or negative) unemployment is high. It may be caused with a large drop-off of demand and usually starts with less personal consumption. This type of unemployment is temporary and it may last from 18 months (the typical time frame of a recession) to ten years (during a depression). One of the effects of cyclical unemployment is its self-fulfilling which causes downward spiral.
e) Higher rates of unemployment can effect society in general and each person in particular. For society it means that reductions in trade harm the economic well-being of all trading partners. Unemployment causes higher protectionism and correlate both with less volunteerism and higher crime. For each unemployed person that have been fired it means instant impact to that person's standard of living. High unemployment rate for the country for sure means much higher payments from state and federal governments for unemployment benefits, food assistance and medical care. Question 2a) If consumers think that their economy is likely to face recession, it will definitely cause changes in their spendings. The idea of recession makes people spend less and safe more, which may cause unstoppable downward spiral of recession. For sure this action will negatively effect aggregate demand and output of the economy.
b) One of the tools of Fiscal policy is changing in government spendings. Spending tools refer to increasing or decreasing government spending/expenditure to influence the economy.
Can increase spending in normal budgetary programs (health, education, welfare, etc.)
Can increase spending on infrastructure (underlying economic foundation of goods and services that allows a society to function e.g. build roads, schools, communication systems)
Added advantage of increasing capital goods in economy which can shift AS in the future
During witch years did the country have a balanced budget, budget surplus, and a budget deficit?
Discuss different types of unemployment:
technological unemployment is caused by technological change. The government can make such hotels to give workers whitch were replaced by machines another job for some time. Or the government can make hotels pay fired employers financial help for 1 year after replacing them with machine.
Calculate:a) Labor force size:
LF is 70% out of 30 millions and equals 21 millions.
b) Number of unemployed workers:
c) Number of employed workers=21 mln – 2.52 mln = 18.48 mln
d) Employed-to-population ratio in percentage
Employed-to-population= (Labor Force Employed/Total Population)*100%=61,6%
How the following individuals would be effected by inflation of 9%:
The student student who took up a study loan from the bank is actually saving his money as far as he is only paying 5% interest rate and the economy “eats” 9%. However this inflation was probably predictioned and calculated by bank in the student’s loan.
A retired civil servant with fixed pension is loosing his money due to suck high inflation rate. Fixed pension usually is independent from inflation.
$100.000 saving in a fixed deposit account is definitely losing 5% this year due to the inflation. This situation clearly shows that inflation decrease value of the money.
Expatriate will not loose anything due to the fact of cost-of-living adjustment witch will exclude negative effect of inflation from his salary.
True or False
Multiple choice questions
What is the effect of this importation on the US consumers and producers?
With this world price(5$) domestic producers may cover only a third part of demand(20 out of 60 millions). In this situation 2 out of 3 T-shirts are made abroad due to the deficit. Such a low price for producers means loosing money and opportunities. Global market gives great opportunity to save 3$ on each T-shirt.
Session 6 Post-class Exercise
In case if some country want to protect domestic markets/encourage its growth and shield from foreign competition it may use tools to restrict international trade. The most common barriers to trade are tariffs, quotas, and nontariff barriers. A tariff is a tax on imports. A quota is a limit on the amount of a certain type of good that may be imported into the country(voluntary or enforced). Nontariff barriers include quotas, regulations regarding product content or quality, and other conditions that hinder imports. One of the most commonly used nontariff barriers are product standards, which may aim to serve as “barriers to trade.”
The effects of tariff on domestic production. There are two different types of tariffs: protective and revenue tariffs. Protective tariffs are to make foreign products more expensive to protect domestic industries from competition. Revenue tariffs are to raise income from world trade. Groups such as the World Trade Organization exist to combat the use of egregious tariffs.
The main reasons for imposing a tariff are to protect domestic producers and earn money on import of cheap goods. Basically tarifs are useful in case of big price difference of importing and domestic products which hurt local firms.
Comperative advantage – ability of person/firm/country to produce goods at a lower opportunity cost than other persons/firms/countries. It gives a country the ability to sell goods at a lower price and realize stronger sales margins. The reason why comperative advantage is so important is that it can make everyone better off. Comparative advantage is a critical concept for free trade proponents.
Subsidies for domesic firms is special financial help for local companies to stimulate export. This payment basically lowers the cost of production for domestic producers, making it more profitable for them to sell their products relative to foreign competition. Product standards – requirements for goods sold domestically to meet specific safety standards in order to acces the market. This barrier is effective when we want to shield domestic market and prevent it from cheap(or low quality) products. This would increase their costs, and make them relatively less efficient than before such standards. Some countries require import or export licenses. When domestic importers of foreign goods are required to get licenses, imports can be restricted by not issuing many licenses. Export licenses have been used to restrict trade with certain countries or to keep domestic prices on agricultural products from rising.
The figure shows domestic supply and demand for an imported goods. The world price is $15 per unit.
1)In case of a tariff of $5 per unit, the domestic supply would be 2 units and the domestic demand would be 6 units at the price $20 for product.
2) With the $5 tariff per unit the country would import 4 units(because 2 units are produced by domestic firms at this price).
3) With the tariff of $5 per unit the government would collect 4*5=$20.
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